Hope on the distant horizon

If the global recession has put a spanner in the no-holds-barred growth of Indian IT services for at least a couple of years, the longterm scenario may not be that dismal. The Indian IT industry association Nasscom and global consultancy McKinsey are on the verge of putting out a report that outlines the perspective that the industry body has for 2020. The executive summary of the report released last fortnight has aggressive and optimistic projections for the coming decade and officials believe that once the current economic situation turns around, things will gradually pick up.

The road to salvation Some 80 per cent of incremental growth by 2020 could come from currently untapped segments. New geographies for outsourcing: Brazil, Russia, China, India New verticals in developed countries: Public sector, healthcare, media (printing & publishing), utilities New customer segment: Small and medium businesses

Over the past decade, from 1998 to 2008, IT services have grabbed a 51 per cent market share in the global outsourcing market. Between 1995 and 2005, Nasscom claims that IT services alone contributed directly and indirectly towards 45 per cent of urban job creation. This is not just in information technology: due to poor infrastructure, several IT companies have built up massive transportation, catering and security operations. Also despite government apathy, the IT industry has played a critical role in empowering women.

Yet, Indian IT services faces several challenges according to the report from a multitude of sources. Alongside security concerns after the Mumbai attacks of 26/11, competitors from countries like China and the Philippines are creating their own global delivery models. But there are also opportunities, including an increased dependence on outsourcing of IT services. Here are the four scenarios drawn up by the Nasscom-McKinsey report for Indian IT exports in 2020.

Demand constrained growth: There could be a global sourcing pull-back due to external constraints, particularly protectionist policies by foreign governments, given increasing unemployment in those economies. This could be exacerbated by other negatives such as India’s cost-competitiveness evaporating and productivity benefits not outweighing offshoring costs. This scenario sees revenues of $125 billion accruing to the industry in 2020.

India constrained: The talent crunch that plagued the industry through 2007 and the first half of 2008 might return to haunt the industry in future. Employability of India’s massive engineering graduates still remains poor according to large IT firms. With no thrust on innovation, India could lose 10 per cent market share to other countries. This, according to McKinsey, is the most likely scenario, with ITservices contributing $175 billion to the economy, which in 2020 will account for 8-10 per cent of GDP.

India retains competitiveness: India retains its 51 per cent marketshare thanks to industry-level changes that counter competition from other locations, specifically China and the Philippines, with sporadic innovation. The labour-arbitrage card will still be the key differentiator on the basis of which India continues to compete and India will bridge its talent shortage (in this scenario) of 1.5 million people. Under this scenario, Indian IT will generate around $225 billion in revenues by 2020.

Innovation-driven growth: In addition to retaining competitiveness, India will also become an innovation hub; this breakthrough will see more business come to India thanks to innovation. This will also drive employment, and thanks to better education and training, the talent gap of 2.7 million extra jobs that will be created will be successfully bridged. India’s IT exports could total $300-310 billion annually by 2020 and total $375 billion, including domestic IT services.